Acctg2A - Cash and Receivables
b. Margin accounts held with brokers.
31. Which of the following is not considered
cash for financial reporting purposes?
a. Petty cash funds and change funds
b. Money orders, certified checks, and personal
checks
c. Coin, currency, and available funds
d. Postdated checks and I.O.U.'s
32. Which of the following is considered
cash?
a. Certificates of deposit (CDs)
b. Money orders
c. Money market savings certificates
d. Postdated checks
33. Travel advances should be reported as
a. supplies.
b. cash because they represent the equivalent
of money.
c. investments.
d. none of these.
P34. Which of the following items should not
be included in the Cash caption on the
statement of financial position
a. Coins and currency in the cash register
b. Checks from other parties presently in the
cash register
c. Amounts on deposit in checking account at
the bank
d. Postage stamps on hand
35. All of the following may be included
under the heading of "cash" except
a. currency.
b. money market funds.
c. checking account balance.
d. savings account balance.
36. In which account are post-dated checks
received classified?
a. Receivables.
b. Prepaid expenses.
c. Cash.
d. Payables.
37. In which account are postage stamps
classified?
a. Cash.
b. Office supplies.
c. Receivables.
d. Inventory.
38. What is a compensating balance?
a. Savings account balances.
c. Temporary investments serving as collateral
for outstanding loans.
d. Minimum deposits required to be maintained
in connection with a borrowing arrangement.
39. Under which section of the statement of
financial position is "cash restricted for plant
expansion" reported?
a. Current assets.
b. Non-current assets.
c. Current liabilities.
d. Equity.
S40. A cash equivalent is a short-term, highly
liquid investment that is readily convertible into
known amounts of cash and
a. is acceptable as a means to pay current
liabilities.
b. has a current market value that is greater
than its original cost
c. bears an interest rate that is at least equal to
the prime rate of interest at the date of
liquidation.
d. is so near its maturity that it presents
insignificant risk of changes in interest rates.
41. Bank overdrafts generally should be
a. reported as a deduction from the current
asset section.
b. reported as a deduction from cash.
c. netted against cash and a net cash amount
reported.
d. reported as a current liability.
42. Deposits held as compensating balances
a. usually do not earn interest.
b. if legally restricted and held against short-
term credit may be included as cash.
c. if legally restricted and held against long-
term credit may be included among current
assets.
d. none of these.
43. The category "trade receivables"
includes
a. advances to officers and employees.
b. income tax refunds receivable.
c. claims against insurance companies for
casualties sustained.
d. none of these.
44. Which of the following should be
recorded in Accounts Receivable?
a. Receivables from officers
b. Receivables from subsidiaries
c. Dividends receivable
d. None of these
S45. What is the preferable presentation of
accounts receivable from officers, employees, or
affiliated companies on a statement of financial
position
a. As offsets to equity.
b. By means of footnotes only.
c. As assets but separately from other
receivables.
d. As trade notes and accounts receivable if
they otherwise qualify as current assets.
46. Which of the following statement is
incorrect regarding receivables on the statement
of financial position?
a. Receivables are a financial asset
b. Receivables are financial instruments.
c. Non-trade receivables are generally reported
as separate items in the statement of financial
position.
d. accounts receivable are written promises of
the purchaser to pay for goods or services.
S47. When a customer purchases
merchandise inventory from a business
organization, she may be given a discount which
is designed to induce prompt payment. Such a
discount is called a(n)
a. trade discount.
b. nominal discount.
c. enhancement discount.
d. cash discount.
P48. Trade discounts are
a. not recorded in the accounts; rather they are
a means of computing a price.
b. used to avoid frequent changes in
catalogues.
c. used to quote different prices for different
quantities purchased.
d. all of the above.
49. If a company employs the gross method
of recording accounts receivable from
customers, then sales discounts taken should be
reported as
a. a deduction from sales in the income
statement.
b. an item of "other income and expense" in the
income statement.
c. a deduction from accounts receivable in
determining the net realizable value of accounts
receivable.
d. sales discounts forfeited in the cost of goods
sold section of the income statement.
50. Why do companies provide trade
discounts?
a. To avoid frequent changes in catalogs.
b. To induce prompt payment.
c. To easily alter prices for different customers.
d. Both a. and c.
51. Of the approaches to record cash
discounts related to accounts receivable, which
is more theoretically correct?
a. Net approach.
b. Gross approach.
c. Allowance approach.
d. All three approaches are theoretically
correct.
52. All of the following are problems
associated with the valuation of accounts
receivable except for
a. uncollectible accounts.
b. returns.
c. cash discounts under the net method.
d. allowances granted.
53. Why is the allowance method preferred
over the direct write-off method of accounting for
bad debts?
a. Allowance method is used for tax purposes.
b. Estimates are used.
c. Determining worthless accounts under direct
write-off method is difficult to do.
d. Improved matching of bad debt expense with
revenue.
54. Which of the following concepts relates
to using the allowance method in accounting for
accounts receivable?
a. Bad debt expense is an estimate that is
based on historical and prospective information.
b. Bad debt expense is based on the actual
amounts determined to be uncollectible.
c. Bad debt expense is an estimate that is
based only on an analysis of the receivables
aging.
d. Bad debt expense is management's
determination of which accounts will be sent to
the attorney for collection.
55. How can accounting for bad debts be
used for earnings management?
a. Determining which accounts to write-off.
b. Changing the percentage of sales recorded
as bad debt expense.
c. Using an aging of the accounts receivable
balance to determine bad debt expense.
d. Reversing previous write-offs.
56. What is the normal journal entry for
recording bad debt expense under the allowance
method?
a. Debit Allowance for Doubtful Accounts,
credit Accounts Receivable.
b. Debit Allowance for Doubtful Accounts,
credit Bad Debt Expense.
c. Debit Bad Debt Expense, credit Allowance
for Doubtful Accounts.
d. Debit Accounts Receivable, credit Allowance
for Doubtful Accounts.
57. What is the normal journal entry when
writing-off an account as uncollectible under the
allowance method?
a. Debit Allowance for Doubtful Accounts,
credit Accounts Receivable.
b. Debit Allowance for Doubtful Accounts,
credit Bad Debt Expense.
c. Debit Bad Debt Expense, credit Allowance
for Doubtful Accounts.
d. Debit Accounts Receivable, credit Allowance
for Doubtful Accounts.
58. Which of the following is included in the
normal journal entry to record the collection of
accounts receivable previously written off when
using the allowance method?
a. Debit Allowance for Doubtful Accounts,
credit Accounts Receivable.
b. Debit Allowance for Doubtful Accounts,
credit Bad Debt Expense.
c. Debit Bad Debt Expense, credit Allowance
for Doubtful Accounts.
d. Debit Accounts Receivable, credit Allowance
for Doubtful Accounts.
59. Assuming that the ideal measure of
short-term receivables in the statement of
financial position is the discounted value of the
cash to be received in the future, failure to follow
this practice usually does not make the
statement of financial position misleading
because
a. most short-term receivables are not interest-
bearing.
b. the allowance for uncollectible accounts
includes a discount element.
c. the amount of the discount is not material.
d. most receivables can be sold to a bank or
factor.
60. Which of the following methods of
determining bad debt expense does not properly
match expense and revenue?
a. Charging bad debts with a percentage of
sales under the allowance method.
b. Charging bad debts with an amount derived
from a percentage of accounts receivable under
the allowance method.
c. Charging bad debts with an amount derived
from aging accounts receivable under the
allowance method.
d. Charging bad debts as accounts are written
off as uncollectible.
61. Which of the following methods of
determining annual bad debt expense best
achieves the matching concept?
a. Percentage of sales
b. Percentage of ending accounts receivable
c. Percentage of average accounts receivable
d. Direct write-off
62. Which of the following is a generally
accepted method of determining the amount of
the adjustment to bad debt expense?
a. A percentage of sales adjusted for the
balance in the allowance
b. A percentage of sales not adjusted for the
balance in the allowance
c. A percentage of accounts receivable not
adjusted for the balance in the allowance
d. An amount derived from aging accounts
receivable and not adjusted for the balance in
the allowance
63. The advantage of relating a company's
bad debt expense to its outstanding accounts
receivable is that this approach
a. gives a reasonably correct statement of
receivables in the statement of financial position.
b. best relates bad debt expense to the period
of sale.
c. is the only generally accepted method for
valuing accounts receivable.
d. makes estimates of uncollectible accounts
unnecessary.
64. Under IFRS, which of the following is not
permitted for accounting for material amounts of
uncollectable accounts receivable?
a. Percentage of receivables, allowance
method.
b. Percentage of sales, allowance method.
c. Direct write-off method.
d. All of the choices are acceptable
under IFRS.
 65. Which of the following statement is
incorrect regarding how the IASB requires that
the impairment assessment be performed?
a. Receivables that are individually significant
should be considered for impairment separately,
if impaired, the company recognizes it.
b. Receivables that are not individually
significant are assessed individually. If impaired,
the company recognizes it.
c. Any receivable individually assessed that is
not considered impaired should be included with
a group of assets with similar credit-risk
characteristics and collectively assessed for
impairment.
d. Any receivables not individually assessed
should be collectively assessed for impairment.
66. At the beginning of 2010, Gannon
Company received a three-year zero-interest-
bearing $1,000 trade note. The market rate for
equivalent notes was 8% at that time. Gannon
reported this note as a $1,000 trade note
receivable on its 2010 year-end statement of
financial position and $1,000 as sales revenue
for 2010. What effect did this accounting for the
note have on Gannon's net earnings for 2010,
2011, 2012, and its retained earnings at the end
of 2012, respectively?
a. Overstate, overstate, understate, zero
b. Overstate, understate, understate,
understate
c. Overstate, overstate, overstate, overstate
d. None of these
67. What is imputed interest?
a. Interest based on the stated interest rate.
b. Interest based on the implicit interest rate.
c. Interest based on the average interest rate.
d. Interest based on the coupon rate.
68. Why would a company sell receivables to
another company?
a. To improve the quality of its credit granting
process.
b. To limit its legal liability.
c. To accelerate access to amounts collected.
d. To comply with customer agreements.
69. Which of the following is true when
accounts receivable are factored without
recourse?
a. The transaction may be accounted for either
as a secured borrowing or as a sale, depending
upon the substance of the transaction.
b. The receivables are used as collateral for a
promissory note issued to the factor by the
owner of the receivables.
c. The factor assumes the risk of collectibility
and absorbs any credit losses in collecting the
receivables.
d. The financing cost (interest expense) should
be recognized ratably over the collection period
of the receivables.
S70. Which of the following statements is
incorrect regarding the classification of accounts
and notes receivable?
a. Segregation of the different types of
receivables is required if they are material.
b. Disclose any loss contingencies that exist on
the receivables.
c. Any discount or premium resulting from the
determination of present value in notes
receivable transactions is an asset or liability
respectively.
d. Valuation accounts should be appropriately
offset against the proper receivable accounts.
71. Which of the following statement is
incorrect when a company chooses the fair
value option for its receivables?
a. Receivables are recorded at fair value in the
statement of financial position.
b. Unrealized holding gains and losses from fair
value adjustments are reported as a component
of comprehensive income.
c. The International Accounting Standards
Board believes that fair value measurement for
financial instruments provides more relevant and
understandable information than historical cost.
d. An unrealized holding gain or loss is the net
change in the fair value of the receivable from
one period to another, exclusive of interest
revenue recognized but not recorded.
72. Morley Manufacturing has notes
receivable that have a fair value of $810,000 and
a carrying amount of $620,000. Morley decides
on December 31, 2011, to use the fair value
option for these recently-acquired receivables.
Which of the following statements is correct
regarding the election of the fair value option by
Morley?
a. Morley can elect to use the fair value option
or amortized cost at each statement of financial
position date.
b. Morley reports the receivables at fair value,
with any unrealized holding gains and losses
reported as a separate component of
comprehensive income.
c. The unrealized holding gain is the difference
between the fair value and the carrying amount.
d. All of the choices are correct regarding the
fair value option.
73. Under IFRS Morley Manufacturing will
derecognize its receivables in all of the following
cases except
a. When Morley elects to use the fair value
option for a receivable.
b. When the contractual rights to the cash flows
of the receivable no longer exist; for example
when one of Morley's customers declares
bankruptcy.
c. When Morley collects a receivable when
due.
d. All of the choices require Morley
Manufacturing to derecognize its receivables.
74. On December 31, 2011, Hunter
Corporation has elected to use the fair value
option for one of its notes receivable. The note
was accepted in late September, 2011 from a
customer who was unable to pay its accounts
receivable. The transaction with the customer
had been delivery of accounting services valued
at €25,000. The customer made a partial
payment, resulting in a carrying value for the
note of €22,000. At year-end, Hunter
Corporation estimates the fair value of the note
to be €17,500. Which of the following is incorrect
regarding this note?
a. Hunter will report the note on its statement of
financial position at €17,500.
b. Hunter will report an unrealized loss of
€7,500 in its income statement for the year
ended December 31, 2011.
c. Hunter will be required to use the fair value
option for this note for the duration of its
existence.
d. In 2012, Hunter will calculate the unrealized
holding gain or loss as the net change in the fair
value of the receivable from 2011 to 2012,
exclusive of interest revenue recognized but not
recorded.
75. IFRS requires all of the following when
classifying receivables except
a. Indicate the receivables classified as current
and non-current in the statement of financial
position.
b. Disclose any receivables pledged as
collateral.
c. Disclose all significant concentrations of
credit risk arising from receivables.
d. All of the choices are required by IFRS when
classifying receivables.
76. Which of the following is correct
regarding differences between IFRS and
U.S.GAAP with regard to receivables?
a. Under IFRS de-recognition of a receivable is
determined by using lack of control as the
primary criterion.
b. U.S.GAAP permits the reversal of
impairment losses, with the reversal limited to
the asset's amortized cost before the
impairment.
c. Under IFRS the fair value option is subject to
certain qualifying criteria not in U.S.GAAP.
d. All of the choices are differences
between IFRS and U.S.GAAP for receivables.
P77. The accounts receivable turnover ratio
measures the
a. number of times the average balance of
accounts receivable is collected during the
period.
b. percentage of accounts receivable turned
over to a collection agency during the period.
c. percentage of accounts receivable arising
during certain seasons.
d. number of times the average balance of
inventory is sold during the period.
78. The accounts receivable turnover ratio is
computed by dividing
a. gross sales by ending net receivables.
b. gross sales by average net receivables.
c. net sales by ending net receivables.
d. net sales by average net receivables.
79. Which of the following items should be
included in accounts receivable reported on the
statement of financial position?
a. Notes receivable.
b. Interest receivable.
c. Allowance for doubtful accounts.
d. Advances to related parties and officers.
80. How is days to collect accounts
receivable determined?
a. 365 days divided by accounts receivable
turnover.
b. Net sales divided by 365.
c. Net sales divided by average net trade
receivables.
d. Accounts receivable turnover divided by 365
days.
 81. What is a possible reason for accounts MULTIPLE CHOICE—Computational
receivable turnover to increase from one year to
the next year 87. Consider the following: Cash in Bank –
a. Decreased credit sales during a recession. checking account of $13,500, Cash on hand of
b. Write-off uncollectible receivables. $500, Post-dated checks received totaling
c. Granting credit to customers with lower credit $3,500, and Certificates of deposit totaling
quality. $124,000. How much should be reported as
d. Improved collection process. cash in the statement of financial position?
a. $ 13,500.
*82. Which of the following is an appropriate b. $ 14,000.
reconciling item to the balance per bank in a c. $ 17,500.
bank reconciliation? d. $131,500.
a. Bank service charge.
b. Deposit in transit. 88. On January 1, 2010, Lynn Company
c. Bank interest. borrows $2,000,000 from National Bank at 11%
d. Chargeback for NSF check. annual interest. In addition, Lynn is required to
keep a compensatory balance of $200,000 on
*83. Which of the following is not true? deposit at National Bank which will earn interest
a. The imprest petty cash system in effect at 5%. The effective interest that Lynn pays on
adheres to the rule of disbursement by check. its $2,000,000 loan is
b. Entries are made to the Petty Cash account a. 10.0%.
only to increase or decrease the size of the fund b. 11.0%.
or to adjust the balance if not replenished at c. 11.5%.
year-end. d. 11.6%.
c. The Petty Cash account is debited when the
fund is replenished. 89. Kennison Company has cash in bank of
d. All of these are not true. $10,000, restricted cash in a separate account of
$3,000, and a bank overdraft in an account at
*84. A Cash Over and Short account another bank of $1,000. Kennison should report
a. is not generally accepted. cash of
b. is debited when the petty cash fund proves a. $9,000.
out over. b. $10,000.
c. is debited when the petty cash fund proves c. $12,000.
out short. d. $13,000.
d. is a contra account to Cash.
90. Kaniper Company has the following
*85. The journal entries for a bank items at year-end:
reconciliation Cash in
a. are taken from the "balance per bank" bank $20,
section only. 000
b. may include a debit to Office Expense for Petty
bank service charges. cash
c. may include a credit to Accounts Receivable 300
for an NSF check. Commercial paper with maturity of 2
d. may include a debit to Accounts Payable for months 5,500
an NSF check. Postdated
checks 1,40
*86. When preparing a bank reconciliation, 0
bank credits are Kaniper should report cash and cash equivalents
a. added to the bank statement balance. of
b. deducted from the bank statement balance. a. $20,000.
c. added to the balance per books. b. $20,300.
d. deducted from the balance per books. c. $25,800.
d. $27,200.
 91. Lawrence Company has cash in bank of c. Debit Accounts Receivable for $10,000.
$15,000, restricted cash in a separate account of d. Debit Accounts Receivable for $10,000 and
$4,000, and a bank overdraft in an account at Sales Discounts for $100.
another bank of $2,000. Lawrence should report
cash of 96. AG Inc. made a $10,000 sale on account
a. $13,000. with the following terms: 2/10, n/30. If the
b. $15,000. company uses the net method to record sales
c. $18,000. made on credit, what is/are the debit(s) in the
d. $19,000. journal entry to record the sale?
a. Debit Accounts Receivable for $9,800.
92. Steinert Company has the following b. Debit Accounts Receivable for $9,800 and
items at year-end: Sales Discounts for $200.
Cash in c. Debit Accounts Receivable for $10,000.
bank $30, d. Debit Accounts Receivable for $10,000 and
000 Sales Discounts for $200.
Petty
cash 97. Rosalie Co. uses the gross method to
500 record sales made on credit. On June 10, 2011,
Commercial paper with maturity of 2 it made sales of $100,000 with terms 2/10, n/30
months 8,200 to Finley Farms, Inc. On June 19, 2011, Rosalie
Postdated received payment for 1/2 the amount due from
checks 2,100 Finley Farms. Rosalie's fiscal year end is
Steinert should report cash and cash equivalents on June 30, 2011. What amount will be reported
of in the statement of financial position for the
a. $30,000. accounts receivable due from Finley Farms,
b. $30,500. Inc.?
c. $38,700. a. $49,000
d. $40,800. b. $50,000
c. $48,000
93. If a company purchases merchandise on d. $51,000
terms of 1/10, n/30, the cash discount available
is equivalent to what effective annual rate of 98. Vivian, Inc had net sales in 2011 of
interest (assuming a 360-day year)? €700,000. At December 31, 2010, before
a. 1% adjusting entries, the balances in selected
b. 12% accounts were: accounts receivable €125,000
c. 18% debit, and allowance for doubtful accounts
d. 30% €1,200 credit. Vivian estimates that 2% of its net
sales will prove to be uncollectable. What is the
94. AG Inc. made a $10,000 sale on account cash realizable value of the receivables reported
with the following terms: 1/15, n/30. If the on the statement of financial position
company uses the net method to record sales at December 31, 2011?
made on credit, how much should be recorded a. €112,200
as sales revenue? b. €122,500
a. $ 9,800. c. €111,000
b. $ 9,900. d. €109,800
c. $10,000.
d. $10,100. 99. Vivian, Inc had net sales in 2011 of
€700,000. At December 31, 2010, before
95. AG Inc. made a $10,000 sale on account adjusting entries, the balances in selected
with the following terms: 1/15, n/30. If the accounts were: accounts receivable €125,000
company uses the gross method to record sales debit, and allowance for doubtful accounts
made on credit, what is/are the debit(s) in the €1,200 debit. Vivian estimates that 2% of its net
journal entry to record the sale? accounts receivable will prove to be
a. Debit Accounts Receivable for $9,900. uncollectable. What is the cash realizable value
b. Debit Accounts Receivable for $9,900 and of the receivables reported on the statement of
Sales Discounts for $100. financial position at December 31, 2011?
a. €112,200
b. €122,500
c. €111,000
d. €109,800
100. Rosalie Corporation is located in Los
Angeles but does business throughout Europe.
The company builds and sells equipment used in
manufacturing pharmaceuticals. On December
31, 2011, Rosalie's accounts receivable are as
follows:
Individually significant receivables
Finley Company $ 80,000
Rios, Inc. 200,000
Rafael Co. 120,000
Hunter, Inc. 100,000
All other receivables 500,000
Total $1,000,000
Rosalie Corporation determines that Finley
Company's receivable is impaired by $40,000
and Hunter, Inc.'s receivable is totally impaired.
The other receivables from Rafael and Rios are
not considered impaired. Rosalie determines
that a composite rate of 2% is appropriate to
measure impairment on all other receivables.
What is the total impairment of receivables for
Rosalie Corporation for 2011?
a. $156,400
b. $140,000
c. $150,000
d. $123,600
101. Wave Crest Hotels is located in Canada,
but manages an extensive network of boutique
hotels in the United States. Wave Crest has
significant receivables from 3 customers,
$480,000 due from Stephanie Inn, $900,000 due
from Warren House, and $760,000 due from
Hallmark Hotels. Wave Crest has other
receivables totaling $440,000.
Wave Crest determines that the Warren House
receivable is impaired by $160,000 and the
Hallmark Hotels receivable is impaired by
$200,000. The receivable from
the Stephanie Inn is not considered impaired.
Wave Crest determines that a composite rate of
5% is appropriate to measure impairment on all
other receivables. What is the total impairment
of receivables for Wave Crest for 2011?
a. $382,000
b. $314,000
c. $406,000
d. $360,000
102. Wellington Corp. has outstanding
accounts receivable totaling $2.54 million as of
December 31 and sales on credit during the year
of $12.8 million. There is also a debit balance of
$6,000 in the allowance for doubtful accounts. If
the company estimates that 1% of its net credit
sales will be uncollectible, what will be the
balance in the allowance for doubtful accounts
after the year-end adjustment to record bad debt
expense?
a. $ 25,400.
b. $ 31,400.
c. $122,000.
d. $134,000.
103. Wellington Corp. has outstanding
accounts receivable totaling $6.5 million as of
December 31 and sales on credit during the year
of $24 million. There is also a credit balance of
$12,000 in the allowance for doubtful accounts.
If the company estimates that 8% of its
outstanding receivables will be uncollectible,
what will be the amount of bad debt expense
recognized for the year?
a. $ 532,000.
b. $ 520,000.
c. $1,920,000.
d. $ 508,000.
104. Wellington Corp. has outstanding
accounts receivable totaling $3 million as of
December 31 and sales on credit during the year
of $15 million. There is also a debit balance of
$12,000 in the allowance for doubtful accounts.
If the company estimates that 8% of its
outstanding receivables will be uncollectible,
what will be the balance in the allowance for
doubtful accounts after the year-end adjustment
to record bad debt expense?
a. $1,200,000.
b. $ 228,000.
c. $ 240,000.
d. $ 252,000.
105. At the close of its first year of
operations, December 31, 2010, Ming Company
had accounts receivable of $540,000, after
deducting the related allowance for doubtful
accounts. During 2010, the company had
charges to bad debt expense of $90,000 and
wrote off, as uncollectible, accounts receivable
of $40,000. What should the company report on
its statement of financial position at December
31, 2010, as accounts receivable before the
allowance for doubtful accounts?
a. $670,000 A trial balance before adjustments included the
b. $590,000 following:
c. $490,000
d. $440,000 Debit Credit
Sales
106. Before year-end adjusting entries, Dunn $425,000
Company's account balances at December 31, Sales returns and
2010, for accounts receivable and the related allowance $14,000
allowance for uncollectible accounts were Accounts
$600,000 and $45,000, respectively. An aging of receivable 4
accounts receivable indicated that $62,500 of 3,000
the December 31 receivables are expected to be Allowance for doubtful
uncollectible. The cash realizable value of accounts
accounts receivable after adjustment is 760
a. $582,500.
b. $537,500. 109. If the estimate of uncollectibles is made
c. $492,500. by taking 2% of net sales, the amount of the
d. $555,000. adjustment is
a. $6,700.
107. During the year, Kiner Company made b. $8,220.
an entry to write off a $4,000 uncollectible c. $8,500.
account. Before this entry was made, the d. $9,740.
balance in accounts receivable was $50,000 and
the balance in the allowance account was 110. If the estimate of uncollectibles is made
$4,500. The cash realizable value of accounts by taking 10% of gross account receivables, the
receivable after the write-off entry was amount of the adjustment is
a. $50,000. a. $3,540.
b. $49,500. b. $4,300.
c. $41,500. c. $4,224.
d. $45,500. d. $5,060.

108. The following information is available for 111. Lankton Company has the following
Murphy Company: account balances at year-end:
Allowance for doubtful accounts at December Accounts
31, 2009 $ 8,000 receivable $60,00
Credit sales during 0
2010 Allowance for doubtful
400,000 accounts 3,600
Accounts receivable deemed worthless and Sales
written off during 2010 9,000 discounts
As a result of a review and aging of accounts 2,400
receivable in early January 2011, however, it Lankton should report accounts receivable at a
has been determined that an allowance for net amount of
doubtful accounts of $5,500 is needed a. $54,000.
at December 31, 2010. What amount should b. $56,400.
Murphy record as "bad debt expense" for the c. $57,600.
year ended December 31, 2010? d. $60,000.
a. $4,500
b. $5,500 112. Smithson Corporation had
c. $6,500 a 1/1/10 balance in the Allowance for Doubtful
d. $13,500 Accounts of $10,000. During 2010, it wrote off
$7,200 of accounts and collected $2,100 on
Use the following information for questions 109 accounts previously written off. The balance in
and 110. Accounts Receivable was $200,000 at 1/1 and
$240,000 at 12/31. At 12/31/10, Smithson
estimates that 5% of accounts receivable will
prove to be uncollectible. What is Bad Debt Accounts of $15,000. During 2010, it wrote off
Expense for 2010? $10,800 of accounts and collected $3,150 on
a. $2,000. accounts previously written off. The balance in
b. $7,100. Accounts Receivable was $300,000 at 1/1 and
c. $9,200. $360,000 at 12/31. At 12/31/10, McGlone
d. $12,000. estimates that 5% of accounts receivable will
prove to be uncollectible. What should McGlone
113. Black Corporation had a 1/1/10 balance report as its Allowance for Doubtful Accounts
in the Allowance for Doubtful Accounts of at12/31/10?
$12,000. During 2010, it wrote off $8,640 of a. $7,200.
accounts and collected $2,520 on accounts b. $7,350.
previously written off. The balance in Accounts c. $10,350.
Receivable was $240,000 at 1/1 and $288,000 d. $18,000.
at 12/31. At 12/31/10, Black estimates that 5% of
accounts receivable will prove to be 117. Lester Company received a seven-year
uncollectible. What should Black report as its zero-interest-bearing note on February 22, 2010,
Allowance for Doubtful Accounts at12/31/10? in exchange for property it sold to Porter
a. $5,760. Company. There was no established exchange
b. $5,880. price for this property and the note has no ready
c. $8,280. market. The prevailing rate of interest for a note
d. $14,400. of this type was 7% on February 22, 2010, 7.5%
on December 31, 2010, 7.7% on February 22,
114. Shelton Company has the following 2011, and 8% on December 31, 2011. What
account balances at year-end: interest rate should be used to calculate the
Accounts interest revenue from this transaction for the
receivable $8 years ended December 31, 2010 and 2011,
0,000 respectively?
Allowance for doubtful a. 0% and 0%
accounts 4,800 b. 7% and 7%
Sales c. 7% and 7.7%
discounts d. 7.5% and 8%
3,200
Shelton should report accounts receivable at a 118. On December 31, 2010, Flint
net amount of Corporation sold for $75,000 an old machine
a. $72,000. having an original cost of $135,000 and a book
b. $75,200. value of $60,000. The terms of the sale were as
c. $76,800. follows:
d. $80,000. $15,000 down payment
$30,000 payable on December 31 each of the
115. Vasguez Corporation had next two years
a 1/1/10 balance in the Allowance for Doubtful The agreement of sale made no mention of
Accounts of $20,000. During 2010, it wrote off interest; however, 9% would be a fair rate for
$14,400 of accounts and collected $4,200 on this type of transaction. What should be the
accounts previously written off. The balance in amount of the notes receivable net of the
Accounts Receivable was $400,000 at 1/1 and unamortized discount on December 31,
$480,000 at 12/31. At 12/31/10, Vasguez 2010 rounded to the nearest dollar? (The
estimates that 5% of accounts receivable will present value of an ordinary annuity of 1 at 9%
prove to be uncollectible. What is Bad Debt for 2 years is 1.75911.)
Expense for 2010? a. $52,773.
a. $4,000. b. $67,773.
b. $14,200. c. $60,000.
c. $18,400. d. $105,546.
d. $24,000.
119. Assume Royal Palm Corp., an
116. McGlone Corporation had equipment distributor, sells a piece of machinery
a 1/1/10 balance in the Allowance for Doubtful with a list price of $800,000 to Arch Inc. Arch
Inc. will pay $850,000 in one year. Royal Palm
Corp. normally sells this type of equipment for
90% of list price. How much should be recorded
as revenue?
a. $720,000.
b. $765,000.
c. $800,000.
d. $850,000.
120. Equestrain Roads sold $50,000 of goods
and accepted the customer's $50,000 10%
1-year note receivable in exchange. Assuming
10% approximates the market rate of return,
what would be the debit in this journal entry to
record the sale?
a. No journal entry until cash is collected.
b. Debit Notes Receivable for $50,000.
c. Debit Accounts Receivable for $50,000.
d. Debit Notes Receivable for $45,000.
121. Equestrain Roads sold $50,000 of goods
and accepted the customer's $50,000 10%
1-year note in exchange. Assuming 10%
approximates the market rate of return, how
much interest would be recorded for the year
ending December 31 if the sale was made on
June 30?
a. $0.
b. $1,250.
c. $2,500.
d. $5,000.
122. Equestrain Roads accepted a customer's
$50,000 zero-interest-bearing six-month note in
a sales transaction. The product sold normally
sells for $46,000. If the sale was made on June
30, how much interest revenue from this
transaction would be recorded for the year
ending December 31?
a. $0.
b. $2,000.
c. $4,000.
d. $5,000.
123. Assuming the market interest rate is 10%
per annum, how much would Green Co. record
as a note payable if the terms of the loan with a
bank are that it would have to make one $60,000
payment in two years?
a. $60,000.
b. $54,422.
c. $54,545.
d. $49,587.
124. Sun Inc. factors $2,000,000 of its
accounts receivables without guarantee
(recourse) for a finance charge of 5%. The
finance company retains an amount equal to
10% of the accounts receivable for possible
adjustments. What would be recorded as a gain
(loss) on the transfer of receivables?
a. Loss of $100,000.
b. Gain of $100,000.
c. Loss of $300,000.
d. Loss of $200,000.
125. Sun Inc. factors $2,000,000 of its
accounts receivables with guarantee (recourse)
for a finance charge of 3%. The finance
company retains an amount equal to 10% of the
accounts receivable for possible adjustments.
What would be recorded as a gain (loss) on the
transfer of receivables?
a. Gain of $60,000.
b. Loss of $60,000.
c. Loss of $260,000.
d. $0.
126. Sun Inc assigns $2,000,000 of its
accounts receivables as collateral for a $1
million 8% loan with a bank. Sun Inc. also pays a
finance fee of 1% on the transaction upfront.
What would be recorded as a gain (loss) on the
transfer of receivables?
a. Loss of $20,000.
b. Loss of $160,000.
c. Loss of $180,000.
d. $0.
127. Moon Inc. factors $1,000,000 of its
accounts receivables with guarantee (recourse)
for a finance charge of 4%. The finance
company retains an amount equal to 8% of the
accounts receivable for possible adjustments.
What would be the debit to Cash in the journal
entry to record this transaction?
a. $1,000,000.
b. $960,000.
c. $880,000.
d. $780,000.
128. Moon Inc assigns $1,500,000 of its
accounts receivables as collateral for a $1
million loan with a bank. The bank assesses a
3% finance fee and charges interest on the note
at 6%. What would be the journal entry to record
this transaction?
a. Debit Cash for $970,000, debit Finance
Charge for $30,000, and credit Notes payable
for $1,000,000.
b. Debit Cash for $970,000, debit Finance
Charge for $30,000, and credit Accounts
Receivable for $1,000,000.
c. Debit Cash for $970,000, debit Finance
Charge for $30,000, debit Due from Bank for
$500,000, and credit Accounts Receivable for
$1,500,000.
d. Debit Cash for $910,000, debit Finance
Charge for $90,000, and credit Notes Payable
for $1,000,000.
Use the following information for questions 129
and 130.
Geary Co. assigned $400,000 of accounts
receivable to Kwik Finance Co. as security for a
loan of $335,000. Kwik charged a 2%
commission on the amount of the loan; the
interest rate on the note was 10%. During the
first month, Geary collected $110,000 on
assigned accounts after deducting $380 of
discounts. Geary accepted returns worth $1,350
and wrote off assigned accounts totaling $2,980.
129. The amount of cash Geary received from
Kwik at the time of the transfer was
a. $301,500.
b. $327,000.
c. $328,300.
d. $335,000.
130. Entries during the first month would
include a
a. debit to Cash of $110,380.
b. debit to Bad Debt Expense of $2,980.
c. debit to Allowance for Doubtful Accounts of
$2,980.
d. debit to Accounts Receivable of $114,710.
Use the following information for questions 131
and 132.
On February 1, 2010, Henson Company
factored receivables with a carrying amount of
$300,000 to Agee Company. Agee Company
assesses a finance charge of 3% of the
receivables and retains 5% of the receivables.
Relative to this transaction, you are to determine
the amount of loss on sale to be reported in the
income statement of Henson Company for
February.
131. Assume that Henson factors the
receivables on a without guarantee (recourse)
basis. The loss to be reported is
a. $0.
b. $9,000.
c. $15,000.
d. $24,000.
132. Assume that Henson factors the
receivables on a with guarantee (recourse)
basis. The amount of cash received is
a. $285,000.
b. $276,000.
c. $291,000.
d. $300,000.
133. Maxwell Corporation factored, with
guarantee (recourse), $100,000 of accounts
receivable with Huskie Financing. The finance
charge is 3%, and 5% was retained to cover
sales discounts, sales returns, and sales
allowances. What amount of cash would
Maxwell receive on the sale of receivables?
a. $97,000.
b. $95,000.
c. $92,000.
d. $100,000.
134. Wilkinson Corporation factored, with
guarantee (recourse), $400,000 of accounts
receivable with Huskie Financing. The finance
charge is 3%, and 5% was retained to cover
sales discounts, sales returns, and sales
allowances. What amount of cash would
Wilkinson receive on the sale of receivables?
a. $388,000.
b. $380,000.
c. $368,000.
d. $400,000.
135. Remington Corporation had accounts
receivable of $100,000 at 1/1. The only
transactions affecting accounts receivable were
sales of $600,000 and cash collections of
$550,000. The accounts receivable turnover is
a. 4.0.
b. 4.4.
c. 4.8.
d. 6.0.
136. Laventhol Corporation had accounts
receivable of $100,000 at 1/1. The only
transactions affecting accounts receivable were
sales of $900,000 and cash collections of
$850,000. The accounts receivable turnover is
a. 6.0.
b. 6.6.
c. 7.2.
d. 9.0.
*137. If a petty cash fund is established in the (2) An NSF check from Garner Company in the
amount of $250, and contains $150 in cash and amount of $900 that had been deposited at the
$95 in receipts for disbursements when it is bank, but was returned for lack of sufficient
replenished, the journal entry to record funds on December 29. The check was to be
replenishment should include credits to the redeposited on January 3, 2011. The original
following accounts deposit has been included in the December 31
a. Petty Cash, $75. checkbook balance.
b. Petty Cash, $100. (3) Coin and currency on hand amounted to
c. Cash, $95; Cash Over and Short, $5. $1,450.
d. Cash, $100. The proper amount to be reported on Finley's
statement of financial position for cash
*138. If the month-end bank statement shows at December 31, 2010 is
a balance of $36,000, outstanding checks are a. $21,300.
$12,000, a deposit of $4,000 was in transit at b. $20,400.
month end, and a check for $500 was c. $22,200.
erroneously charged by the bank against the d. $21,750.
account, the correct balance in the bank account
at month end is *141. The cash account shows a balance of
a. $27,500. $45,000 before reconciliation. The bank
b. $28,500. statement does not include a deposit of $2,300
c. $20,500. made on the last day of the month. The bank
d. $43,500. statement shows a collection by the bank of
$940 and a customer's check for $320 was
*139. In preparing its bank reconciliation for returned because it was NSF. A customer's
the month of April 2010, Henke, Inc. has check for $450 was recorded on the books as
available the following information. $540, and a check written for $79 was recorded
Balance per bank as $97. The correct balance in the cash account
statement, 4/30/10 $39,14 was
0 a. $45,512.
NSF check returned with 4/30/10 bank b. $45,548.
statement 450 c. $45,728.
Deposits in d. $47,848.
transit, 4/30/10
5,000 *142. In preparing its May 31, 2010 bank
Outstanding reconciliation, Catt Co. has the following
checks, 4/30/10 information available:
5,200 Balance per bank
Bank service charges for statement, 5/31/10 $30,00
April 20 0
What should be the correct balance of cash Deposit in
at April 30, 2010? transit, 5/31/10
a. $39,370 5,400
b. $38,940 Outstanding
c. $38,490 checks, 5/31/10
d. $38,470 4,900
Note collected by bank in
*140. Finley, Inc.’s checkbook balance May 1,250
on December 31, 2010 was $21,200. In addition, The correct balance of cash at May 31, 2010 is
Finley held the following items in its safe on a. $35,400.
December 31. b. $29,250.
(1) A check for $450 from Peters, Inc. c. $30,500.
received December 30, 2010, which was not d. $31,750.
included in the checkbook balance.